Is there such a thing as hassle free real estate investing?
Most think about scouring the internet for a good deal, driving around neighborhoods and looking for abandoned homes, or pouring your hard earned time and money into fixing up a beat-up home on nights and weekends. As a busy military service member, most would say they don’t have the time to dive into this type of real estate investing, and to some extent, I would agree with that statement. There is only so much time in the day, and depending on an individual’s lifestyle design, other priorities may take precedence.
When I first started learning about real estate investing, I learned a very important concept about my “Return on Investment”. Most think about their Return on Investment (ROI) as being the money gained divided by the money invested:
ROI = Profit/($ Invested)
In the simple math equation above, if profit remains the same, but the denominator ($ invested) goes down, the higher the ROI will be.
What I soon learned about the ROI formula is that there is much more involved in the denominator of the math equation. There are many other important inputs when it comes to figuring out the ROI. I’m talking about time, skill, knowledge, and relationships. Here is what the equation should really look like.
ROI = Profit/($+Time+Skills+Knowledge+Relationships)
Again, as profit remains the same and the denominator goes down, the higher the ROI will be. But, the added inputs of time, skills, knowledge, and relationships must be considered. If you are using a significant amount of your time or skills to create the same amount of profit, the ROI has actually significantly decreased. Yes, the money received will be the same, but think about the time value of money. What else could you be doing with the time and skill used that went into the investment?
Now, don’t get me wrong, I’m not saying that you don’t need to invest in your education, skills, and building relationships, but the more of each of these that get inputted into the denominator of an individual investment, the less your ROI will be. So the goal of any investment is to reduce the denominator as much as possible. This may come with experience, good contacts, good systems, leverage, or investing in turnkey investments that require less time.
As I learned this new formula, I started to look at real estate investing a little differently. What I have found is that there are three different strategies that have helped me find ways to reduce the denominator and maximize my ROI. Over the last four years I have focused on mortgage note investing, private money lending, and turnkey rental property. All three I consider “hassle free investing” and are perfect strategies for my current lifestyle design.
If you are interested in learning more about each of the strategies, feel free to email me or post questions to the discussion board. I plan on diving into each one a little more in depth as the blog postings grow.
Written by Stuart Grazier